Could a carbon tax help reduce the U.S. deficit and stave off 'the fiscal cliff'?

Could a carbon tax help reduce the U.S. deficit and stave off 'the fiscal cliff'?

From Green Right Now Reports A carbon tax. The idea has been floating out there for decades now, proposed by environmentalists as a way for fossil fuel industries to pay...

From Green Right Now Reports

A carbon tax. The idea has been floating out there for decades now, proposed by environmentalists as a way for fossil fuel industries to pay for their pollution and reduce the carbon emissions forcing climate change.

Soon, however, the concept of the carbon tax could have some new, surprising adherents.

A report by the Congressional Research Service suggests that a carbon tax of $40 per ton of carbon dioxide pollution could greatly reduce the U.S. deficit, maybe even halving it over the next decade. And Republicans, who are facing the prospect of raising taxes to get the U.S. out of the fiscal ditch, are taking note of this new potential revenue stream. Some who are loathe to raise personal taxes, see potential in the carbon tax. According to a Nov. 10 Reuters’ article about the CRS analysis:

Such a tax would generate about $88 billion in 2012, rising to $144 billion by 2020, the report said, slashing U.S. debt by between 12 and 50 percent within a decade, depending on how high the deficit climbs, the report said.
A handful of former Republican policymakers – ones most likely to reject new or higher taxes as a matter of principle – has been touting its potential to raise revenue for a cash-strapped federal budget.
In research notes after Tuesday’s presidential election, analysts at global banks HSBC and Citigroup flagged a carbon tax as a program that could potentially emerge in President Barack Obama’s second term.

The article quotes George Shultz, a Hoover Institution fellow and former Secretary of State under Ronald Reagan, as saying the carbon tax could win support among Republicans, if the proceeds were returned to taxpayers.

The Congressional Research Service notes that the carbon tax is a potential deficit-solver with positive side effect that many would consider even more important than the fiscal benefit: It would drive down the greenhouse gas emissions that are creating global warming. From the report:

Although fossil fuels have facilitated economic growth in the United States and around the world, fossil fuel combustion has inadvertently raised the atmospheric concentration of CO2 by about 40% over the past 150
years. Almost all climate scientists agree that these CO2 increases have contributed to a warmer climate today, and that, if they continue, will contribute to future climate change.

You can read the full foot-noted report, Carbon Tax: Deficit Reduction and Other Considerations here.

The report does note that a key obstacle to a carbon tax is the fact that industries and power providers hit by the tax would almost certainly pass along the costs, which would raise expenses for consumers. That problem, however, could be addressed by returning a portion of the carbon tax proceeds directly to taxpayers, as the report notes:

If Congress were to consider a carbon tax system, a key debate would likely involve the degree to which carbon tax revenues would be returned to households to alleviate the expected financial burden imposed by the carbon tax.75 A 2007 study estimated that households and businesses that are end users would experience the vast majority (89%) of the private costs under a carbon pricing regime (the remaining 13% was attributed to coal, oil, and gas producers and fossil
electricity generators).